Margin Trading Overview
What is Margin Trading?
Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment.
Margin trading involves:
- Having collateral in your account against which you borrow:
- To purchase stock on margin, you borrow money from IBSJ to buy more shares than if you purchased them outright for cash.
- To sell stock on margin, you borrow stock from IBSJ so that you can sell more shares than you own.
- Paying borrowing costs to IBSJ for borrowing cash (to buy stock) or shares (to sell stocks short).
Because you are buying or selling more than you could if you were trading in fully paid shares, it is possible to lose more money than your initial investment.
Benefits of a Margin Trading Account
Unlike most brokers, IBSJ only charges borrow fees on the amount you borrow rather than the entire value of your position. In addition, your cash is used first to fund your trading, not as collateral for your loan.
In combination, these features can significantly reduce your margin costs and allow you to:
Leverage Assets:
Leverage the collateral in your brokerage account
to increase your purchasing power.
Trade with a Single Account:
Trade stocks and derivatives from a single account,
and manage your risk by shorting Japanese or US stocks.
Understand the Risks of Margin Trading
Margin borrowing is only for experienced investors with high risk tolerance.
You may lose more than your initial investment.
Before trading on margin, understand the following risks:
- Trading losses may be greater than the value of the initial investment
- Leveraged investments create a greater potential risk of loss
- Additional costs from margin interest charges
- Potential margin calls or liquidation of securities
Stock Price (JPY)
Time
6,500
6,000
5,500
3,000
How Trading Securities on Margin Works
Trading on margin means borrowing against your existing collateral to increase your purchasing power.
Initial Margin refers to how much equity you must have available as collateral to buy securities on margin and determines how much collateral you need to open a position.
Maintenance Margin refers to how much equity you must keep in your margin account to be allowed to maintain borrowed securities and defines how much collateral you need to have to keep a position.
Our trading platforms provide tools to help you:
- Monitor margin balances and requirements in real-time.
- Preview the impact of an order on your margin balances before entering the order.
- Receive warnings and set alerts when your margin requirements are at risk.
The rules for margin trading are different between USA-listed and Japan-listed securities.
Margin Education Course on Traders' Academy
Introduction to Margin Trading
This course is designed to help investors understand margin basics, including different types of margin accounts, margining methods, and margin requirements, plus how to monitor margin on both Trader Workstation (TWS) and IBKR Mobile.
Trading on margin is only for sophisticated traders. You may lose more than your initial investment.
- Introduction to Margin
- Monitoring Margin in TWS
- Looking at Margin on IBKR Mobile
